There's Been A Shift In Thinking On The Global Economy — And It's Not Good For The United States

Whereas before, the thinking was that the US economy was the lone pillar of strength in a world that was seeing declines in Europe and China, the new thinking is that Europe and China are starting to turn the corner, and that the US is just starting to hit its slowdown. Today's manufacturing and trade data from Asia confirm the idea that Asia is turning around.

In a note to clients yesterday, SocGen's Sebastien Galy wrote:

The economic theme has been that as the US economic data improved, the Asian one eventually followed led by South Korea and then China in a fairly traditional recovery. The US picture is now on the margin more mixed, while Canada is taking a larger than expected correction from the consequence of the slowdown in Asia. If one continues this logic China and South Korea should surprise to the upside while the picture is more mixed in the US.

Along these lines, Goldman's Shuyan Wu wrote yesterday that Goldman's own proprietary Goldman Sachs Analyst Index was seeing a "Spooky October."

The key points:

The Goldman Sachs Analyst Index (GSAI) tumbled to 32.9 in October from 44.1 in September. Underlying components also fell across the board, suggesting depressed business activity from the bottom-up.

The employment index remains weak, while lower price indexes continue to suggest softening inflationary pressure, in line with our current expectation.

The accompanying chart shows how far it has declined:

This chart is consistent with other charts people have been passing around, including the core CAPEX chart, which is showing a significant year over year decline in growth, and which went viral last week.

BTIG

As for why the US economy appears to be slowing, it seems clearly a business-side phenomenon (after all,consumer sentiment is great), and that may have something to do with fears of the fiscal cliff and weak exports (something that might possibly turn up again if the bounce in China is real).

Bottom line: There's this growing sense that recent actions taken by policy makers in Europe and China are helping those economies turn the corner. Whereas at the same time, fiscal cliff worries are growing in the US, and therefore, the US economy may be in the early days of its policy-related rough patch.